Why could mark-to-market accounting make Enron’s current income look larger than it was?

Mark-to-market accounting allowed Enron Corporation to artificially inflate its reported financial health by recording unrealized future gains from trading contracts as current income.1

By using this accounting technique, the company could project the total estimated value of long-term contracts and include those anticipated profits in its current income statements, even though the actual cash had not yet been received. This practice created the illusion of higher current profits, which helped mask the company's shrinking actual earnings as it faced increased competition and financial pressure.1

In the context of the Enron scandal, this method was one of several dubious accounting practices employed by executives to hide the company's true financial troubles from shareholders and investors.1